What generally characterizes a certificate of deposit (CD)?

A certificate of deposit (CD) is characterized by offering a fixed term and generally higher interest rates compared to traditional savings accounts. This fixed term means that the depositor agrees to keep their money in the account for a specific period, which typically ranges from a few months to several years. During this time, the funds cannot be accessed without incurring a penalty, reinforcing the fixed nature of the investment.

The interest rate on a CD is usually higher than that of regular savings accounts because the financial institution benefits from having the money for a longer duration, providing them with the ability to invest it into longer-term assets. This feature makes CDs an attractive option for those looking to earn a competitive return on their savings while accepting that they won't need to access the funds before the term ends.

In contrast, other options describe features that do not align with the fundamental attributes of a CD, such as having a variable interest rate or being easily accessible without penalties. These factors distinguish CDs as a more stable and predictable investment vehicle within the broader context of banking products.